Wednesday 29 February 2012

SEG (FV RM2.17 - BUY) FY11 Results Review: Hits The Sweet Spot


SEG International’s (SEGi) FY11 core earnings of RM72.3m were in line with both our and consensus forecasts, making up  95.3% and  98.4% of the  respective projections.  Being one of the largest private education players in Malaysia with 30k students on board, we continue to like SEGi for its diversified course offering and established balance sheet  that is premised on an asset-light model. Hence, maintain BUY at a revised FV of RM2.17 based on an unchanged 18x FY12 PER.

Within expectations. SEGi’s FY11 revenue came in 27.9% higher y-o-y at RM278.3m due to higher student enrolment, which we estimate to have risen from 21k to 30k as of Dec 2011. Correspondingly, the EBITDA margin widened 300bps to 31.9% on improved economies of scale as enrolment growth outpaced the marginal increase in opex. Lower financing costs and a more favourable effective tax rate helped lift FY11 core earnings to RM72.3m, which surged over 67.9% y-o-y. On a quarterly basis, 4QFY11  results were generally up y-o-y on higher student enrolment but recorded a slight dip sequentially due to expenses incurred in upgrading its campuses during the quarter. 

Cash pile of RM87.2m.  Although the company did not declare any dividends for the quarter, we continue to see potential for a bumper dividend given its sturdy cash pile of RM87.2m as of Dec 2011 (which translates into a net cash per share of 14.0 sen based on  the  current share capital) as well as its strong operating cash flow estimated at >RM100m p.a. for both FY12 and FY13. Should its remaining 189.7m outstanding warrants which are currently trading at a slight discount of 1.5% be exercised, this will translate into an extra cash coffer of RM94.8m at the exercise price of RM0.50/share. In our model, we assume a staggered conversion with an average 63.2m warrants converted per year from FY12 to FY14.

BUY. We make no major changes to our core assumptions for now, with our FY12 core earnings forecast revised upward marginally by 0.5% to RM90.2m for book-keeping purposes following its full-year results release. We also take the opportunity to introduce our FY13 forecasts, with the net profit estimate coming in at RM99.6m. Maintain BUY with our FV now revised to RM2.17 based on an unchanged 18x FY12 PER and a fully enlarged share base of 748.4m shares upon the conversion of all outstanding warrants.

Source: OSK188

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